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Preparing for New Wave of Mortgage Fraud

Source: National Mortgage News

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Posted on 19 Apr 2013 by Neilson

Mortgage fraudAs mortgage fraud shifts from a refinance market to a purchase market, a major concern for lenders and servicing shops is how to get their staff ready for the upcoming trend in risk management.

At the Mortgage Bankers Association's 2013 National Fraud Conference in Hollywood, Fla., Gary Carr, fraud prevention manager at Fifth Third Bank, called the last five to 10 years a "long strange trip" for mortgage fraud risk managers. To prepare for the purchase market shift, Carr talked about four steps companies should be aware of to mitigate mortgage fraud during a presentation in a session entitled "Fostering Anti-Fraud Instincts in Your Staff."

First, he said companies should know who they are doing business with on a daily basis. Next, Carr stated that in order to limit the amount of mortgage fraud taking place nationwide, it is essential to eliminate fraudulent activity during the prefunding stage of the loan process.

However, if fraud can't be stopped during prefunding, the next best time to catch it is in the underwriting stage by identifying trend analysis in order to "stop the bleeding," Carr mentioned.

If fraud is still not detected and prevented after these previous attempts, Carr said businesses need to have a good collateral valuation fraud prevention tool as the centerpiece of their strategy to limit the losses that might occur.

"Fraud should not be [entirely] production we've gotten away from the pure investigation piece," Carr added. "There has to be some sort of trigger mechanism to detect fraudulent loans and we have to look at loans by channel. We must move from a transactional based approach to an institutional based approach."

Meanwhile, Linda Terrasi, senior vice president at Flagstar Bank, said the best defense to mitigate mortgage fraud is "common sense." For example, she said if something does not make sense when an underwriter is reviewing a file, there is probably something wrong with the loan.

"When the industry moves to a purchase environment, the refinance atmosphere has instilled a data checklist environment for underwriters and everyone's skills need to be sharpened. The human element is the key to detecting misrepresentations," Terrasi stated during the session.

Furthermore, Terrasi noted that new loan officers have never experienced a purchase environment and many need to get back to basics, which means that busiest sea have to conduct companywide training to help underwriters detect fraud.

Lisa Binkley, senior vice president of mortgage solutions and business development at Platinum Data Solutions, said the best way for companies to help their employees prepare them to catch fraudulent loans is to perform role-playing courses explaining what fraud investigators are looking for.

"We have to get away from that checklist mentality and be productive rather than reactive," Binkley said.

In her presentation, Binkley said over 60% of risk managers today are reactive introverts, meaning that they are viewed as experts, capable of demonstrating strong analytical skills and applying logic and caution to deal with complex subjects where accuracy and precision is essential.

On the other side, less than 10% of risk managers are proactive introverts. These risk managers are usually determined to see a project brought to a successful completion. These individuals are demanding and do not take no for an answer and are known to break the rules to complete a task.

"Fraud doesn't change, just the perpetrators. Fraudsters will figure out your weakness and penetrate that," Binkley said. "Role playing with your peers by setting up meetings with their customers, including underwriters and loan officers, will help risk managers with their critical thinking and broaden their overall scope to detect mortgage fraud.


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